organisations would manage both their core and non-core business
processes on their own.
the increasingly competitive business operating environment, many
organisations now need to streamline and re-evaluate their systems
and processes to be more efficient and cost-effective.
trend that has emerged is the outsourcing of non-core business
activities – namely the outsourcing of functions such as
logistics, information technology (IT) and financial-related services
organisations in a variety of industries are realising that there
are numerous benefits in outsourcing their 3pl logistics needs.
Total global logistics costs run in excess of US$2 trillion (RM7.6tril).
Of this, the value of third-party logistics is valued at US$100bil
(McKinsey Quarterly, 2003). This 3pl services shows that in attempts
to be cost effective today’s organisations are increasingly
allowing expert third-party logistics providers to manage their
entire supply chains.
to Investopedia, the term “outsourcing” refers to
the practice of organisations to reduce costs by transferring
portions of work to outside suppliers, rather than completing
them internally. Logistics concerns the detailed planning of movement
of products, from source to warehouses, retailers, etc.
concept of outsourcing stems from its comparative advantage. Many
see outsourcing of logistics services as a means of cutting costs
but, really, it is more than that. It is a strategic tool that
gives the manufacturer an edge over its competitors.
of logistics began in the United States and Europe, where it is
now prevalent, with many organisations turning to dedicated third-party
logistics providers that offer better costs control and more efficient
customer response, alongside shorter delivery times, to match
the required product cycle. They are able to develop customer-specific
logistics solutions that meet the requirements of individual customers.
the US today, approximately 400 of the 500 largest manufacturers
(or 80%) use third-party logistics. This represents tremendous
growth in the outsourcing of logistics services from, say, a decade
ago when fewer than 185 of the largest manufacturers engaged third-party
Asia, the outsourcing of 3pl logistics is still in its infancy,
but the trend is definitely beginning to take shape. In the forefront
of this new wave are multinational companies (MNCs), with larger
local manufacturers close on their heels. Particularly in Malaysia,
many 3PL provider organisations have begun to utilise third-party
experts to manage their storage, processing and distribution activities
is interesting about logistics outsourcing in Asia is the growth
of a niche sector, namely that of the provision of temperature-controlled
logistics services. This caters mainly to products such as perishables
that require relatively low and stable temperature throughout
the supply chain – from the point of source to the end customer.
By maintaining “no break in the cold chain”, product
freshness is assured and product life extended.
companies begin to re-engineer and redefine their business processes,
they realise that their logistics deserve closer attention. The
“simple” management of incoming and outgoing goods
accounts for about 10% of the total cost of a particular product.
More often that not, the level of throughput (bulk of products
moving from the warehouse to the destination) of an individual
manufacturer is not sufficiently high to achieve economies of
scale, and thus affects product margins.
companies that outsource their logistics services generally manage
to reduce their operational costs by between 20% and 30%. The
third-party logistics provider manages the storage, distribution
and inventory level, sometimes integrating the procurement, processing,
warehousing, marketing and distribution with finance.
a third-party logistics provider also stems from the decision
to acquire expertise, talent or resources not otherwise available
in the organisation to manage its logistical needs. Having a centralised
base in the outsourced logistics services, an organisation can
allocate all of its resources to core business activities.
continuous improvement of technology, systems and processes, third-party
logistics providers are better able to constantly evaluate and
implement best practices in its field. As it is their core business,
logistics players can concentrate their resources on developing
value-added services such as bulk-breaking, packaging or labelling.
All of these are likely to incur additional costs to an organisation
if done internally.
manufacturers cannot justify the investment costs in setting up
a warehouse or the operational costs involved in the distribution
process. Such high capital expenditure is a burden for most organisations.
In the temperature-controlled logistics arena, there is the added
infrastructure cost of specially designed warehouses, specialty
equipment and refrigerated trucks. Having an outsourced logistics
partner, an organisation is able not only to cut its costs but
also manage its resources more efficiently as, for example, the
pre-determined fee for logistics services allows better forecasting
the growth in demand for their services, third-party logistics
providers are keeping abreast with IT developments to capitalise
on the e-business solutions available. Given the complexity of
transportation and warehousing, the Internet offers itself as
a suitable platform on which communication among the parties involved
can be better managed.
efforts to satisfy customers’ needs and manage costs, the
outsourcing of logistics services should be part of an organisation’s
overall business strategy and looked at from a macro perspective
as a means to achieve an edge over competitors. This would ensure
the creation of business and customer value in the longer term.
the same time, as third-party logistics providers reach deeper
into their customers’ core business, their role will evolve
from that of a support service to that of a strategic partner.
And all of this is with one objective in mind – to work
towards a seamless, cost-effective method for the movement of